Media Alert. First American CoreLogic Releases Q3 Negative Equity Data

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1 Contact Information Below Media Alert First American CoreLogic Releases Q3 Negative Equity Data First American CoreLogic, the first company to develop a national, state and city-level negative equity report, has released third quarter data that includes a proprietary model which factors in loan amortization and utilization rates for home equity lines of credit (HELOC), providing a more precise view of "underwater borrowers." According to First American CoreLogic, nearly 10.7 million, or 23 percent, of all residential properties with mortgages were in negative equity as of September, (As a point of comparison, using the previous methodology, which did not account for amortization or HELOC utilization, the Q3 negative equity rate would have been 33.8 percent.) Negative equity, often referred to as underwater or upside down, means that borrowers owe more on their mortgage than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both. Data Highlights Nearly 10.7 million, or 23 percent, of all residential properties with mortgages were in negative equity as of September, An additional 2.3 million mortgages were approaching negative equity, meaning they had less than five percent equity. Together negative equity and near negative equity mortgages account for nearly 28 percent of all residential properties with a mortgage nationwide. The distribution of negative equity is heavily concentrated in five states: Nevada (65 percent), which had the highest percentage negative equity, followed by Arizona (48 percent), Florida (45 percent), Michigan (37 percent) and California (35 percent). Among the top five states, the average negative equity share was 40 percent, compared to 14 percent for the remaining states. In numerical terms, California (2.4 million) and Florida (2.0 million) had the largest number of negative equity mortgages accounting for 4.4 million or 42 percent of all negative equity loans The rise in negative equity is closely tied to increases in pre-foreclosure activity. At one end of the spectrum, borrowers with equity tend to have very low default rates. At the other end, investors tend to default on their mortgages once in negative equity more ruthlessly: their default rate is typically two to three percent higher than owner-occupied homes with similar degrees of negative equity. For the highest level of negative equity, investors and owners behave very similarly and default at similar rates (Figure 4). Strategic default on the part of the owner occupier becomes more likely at such high levels of negative equity. The bulk of upside down borrowers, as a group, share certain characteristics. They: o Financed their properties between 2005 and 2008, with 2006 being the peak year where 40 percent of borrowers were in negative equity (Figure 5). Negative equity continues to be a

2 problem even for 2009 originations as evidenced by a negative equity share of 11 percent and another 5 percent near negative equity. o o o Purchased newly built homes that are concentrated in a small number of states. For homes built between 2006 and 2008, the negative equity share is over 40 percent. Relied on adjustable rate mortgages (ARMs) Bought less expensive properties. The average value for all properties with a mortgage is $270,200, but properties in negative equity have an average value of $210,300 or 22 percent less (Figure 8). The average mortgage debt for properties in negative in equity was $280,000 and borrowers that were in a negative equity position were upside down by an average of nearly $70,000. The aggregate property value for loans in a negative equity position was $2.2 trillion, which represents the total property value at risk of default, against which there was a total of $2.9 trillion of mortgage debt outstanding. "This enhanced methodology provides a more precise picture of this significant problem that so many homeowners are facing," said Mark Fleming, chief economist with First American CoreLogic. "Negative equity continues to be pervasive and to impact almost every segment of the housing market. The recent improvement in home prices this past spring and summer has slowed the increase in negative equity, but it will take a significant rebound in home prices, which we are not expecting, to offset the dampening effects of negative equity in the most depressed states. Methodology*: FirstAmericanCoreLogic sdataincludes47millionpropertieswithamortgage,whichaccountsforover90percentofall mortgagesintheu.s.*thedatawasrevisedforq32009toadjustforamortizationandhelocutilization.thenet impactoftherevisionswasanexpecteddeclineinnegativeequity.asaresult,theseestimatesarenotcomparableto priorquarters. FirstAmericanCoreLogicuseditspublicrecorddataasthesourceofthemortgagedebtoutstanding(MDO)andit includes1 st mortgageliensandjuniormortgageliensinordertocapturethetruelevelofmortgagedebtoutstandingfor eachproperty.thecurrentvaluewasestimatedbyusingthefirstamericancorelogicautomatedvaluationmodels (AVM)forresidentialproperties.Thedatawasfilteredtoincludeonlypropertiesvaluedbetween$30,000and$30 millionbecauseavmaccuracytendstoquicklyworsenoutsideofthisvaluerange. Theamountofequityforeachpropertywasdeterminedbysubtractingtheproperty sestimatedcurrentvaluefromthe mortgagedebtoutstanding.ifthemortgagedebtwasgreaterthantheestimatedvalue,thenthepropertyisina negativeequityposition.thedatawascreatedatthezipcodelevelandaggregatedtothestateandu.s.totals. *OnlydataformortgagedresidentialpropertiesthathaveanAVMvalueispresented.Thereareseveralstateswhere thepublicrecord,avmormortgagecoverageisverythin.althoughcoverageisthin,thesestatesaccountforfewerthan 5percentofthetotalpopulationoftheU.S. **Thedefinitionofpre foreclosureisanoticeofdefault,whichisthefirststepinthepublicrecordfilingprocess.itis verypossibleforborrowerswithpositiveequitytobeseriouslydelinquentandreceiveapre foreclosurenotice,butif theamountofequityisenough,theytypicallywillbeforcedtoselltheirhometoavoidforeclosure.

3 State Mortgages Negative Equity Mortgages Properties With a Mortgage Outstanding Table 1: Negative Equity by State* Near** Negative Equity Mortgages Negative Equity Share Near** Negative Equity Share Total Property Value Mortgage Debt Outstanding $ Outstanding Net Homeowner Equity Loan-to-Value Ratio Alabama 323,363 23,950 13, % 4.2% 64,211,995,221 41,066,979,451 23,144,883,447 64% Alaska 84,726 8,651 4, % 5.8% 22,581,000,177 15,119,410,632 7,461,552,041 67% Arizona 1,368, ,540 61, % 4.5% 287,685,256, ,930,735,982 26,753,945,273 91% Arkansas 230,402 26,097 14, % 6.4% 35,985,840,989 26,435,828,174 9,549,913,620 73% California 6,934,505 2,407, , % 3.9% 2,898,370,652,854 2,087,963,760, ,404,039,649 72% Colorado 1,126, ,436 87, % 7.8% 307,419,525, ,938,041,045 87,480,986,096 72% Connecticut 804,690 85,744 31, % 3.9% 292,497,354, ,305,920, ,191,119,356 57% Delaware 173,996 24,365 8, % 5.1% 45,609,760,183 31,011,707,815 14,597,984,192 68% Florida 4,561,689 2,038, , % 3.9% 906,227,140, ,754,976, ,470,209,693 87% Georgia 1,573, , , % 8.3% 326,266,456, ,577,714,203 72,688,049,523 78% Hawaii 229,572 18,926 7, % 3.2% 125,578,947,095 65,221,334,743 60,357,525,066 52% Idaho 236,557 46,567 10, % 4.6% 50,976,166,875 34,967,241,144 16,008,823,529 69% Illinois 2,226, , , % 5.1% 548,438,947, ,819,662, ,618,344,143 70% Indiana 557,538 49,836 22, % 4.1% 87,223,021,164 58,295,733,144 28,927,058,985 67% Iowa 305,535 28,534 14, % 4.7% 45,999,224,974 30,413,522,273 15,585,578,037 66% Kansas 286,387 29,824 15, % 5.4% 52,478,187,723 36,553,496,132 15,924,565,399 70% Kentucky 262,287 24,089 13, % 5.3% 44,792,497,951 29,917,071,331 14,875,320,146 67% Louisiana NA NA NA NA NA NA NA NA NA Maine NA NA NA NA NA NA NA NA NA Maryland 1,360, ,820 66, % 4.9% 441,335,180, ,264,670, ,069,926,475 68% Massachusetts 1,480, ,223 54, % 3.7% 538,627,379, ,415,567, ,211,231,057 60% Michigan 1,374, ,278 83, % 6.1% 203,774,863, ,907,256,555 32,867,033,302 84% Minnesota 517,203 80,227 25, % 4.9% 119,740,860,669 75,469,941,221 44,270,703,003 63% Mississippi NA NA NA NA NA NA NA NA NA Missouri 769, ,837 41, % 5.3% 140,248,938,263 97,999,126,231 42,249,480,238 70% Montana 103,283 6,622 2, % 2.7% 27,778,331,905 15,190,034,758 12,588,252,467 55% Nebraska 217,399 20,341 11, % 5.4% 35,038,127,595 25,177,350,824 9,860,681,423 72% Nevada 604, ,112 22, % 3.7% 116,768,920, ,633,221,347-15,864,577, % New Hampshire 204,322 37,793 11, % 5.8% 50,374,032,297 34,471,800,243 15,902,155,455 68% New Jersey 1,886, ,838 81, % 4.3% 684,535,731, ,242,864, ,292,114,448 62% New Mexico 226,922 25,089 9, % 4.4% 54,138,738,940 35,183,750,063 18,954,893,121 65% New York 1,798, ,219 41, % 2.3% 809,676,704, ,674,927, ,001,096,554 49% North Carolina 1,456, ,587 82, % 5.6% 311,067,344, ,185,300,367 95,881,445,711 69% North Dakota 40,694 3,502 1, % 3.3% 6,745,079,056 4,124,256,883 2,620,805,349 61% Ohio 2,203, , , % 6.7% 325,815,930, ,197,977,298 82,617,002,776 75% Oklahoma 394,881 24,247 13, % 3.4% 58,172,916,206 40,728,126,667 17,444,615,134 70% Oregon 698,525 97,186 37, % 5.4% 188,192,330, ,369,338,550 62,822,700,362 67% Pennsylvania 1,765, ,878 56, % 3.2% 397,202,585, ,025,236, ,176,623,917 61% Rhode Island 224,650 36,439 6, % 3.1% 64,030,416,719 34,641,060,959 29,389,266,786 54% South Carolina 569,567 68,238 30, % 5.3% 129,999,110,063 88,742,738,130 41,256,145,022 68% South Dakota NA NA NA NA NA NA NA NA NA Tennessee 932, ,383 65, % 7.0% 162,953,218, ,254,441,585 48,698,384,523 70% Texas 3,168, , , % 6.0% 580,942,759, ,507,399, ,433,964,328 69% Utah 470,227 86,024 28, % 6.0% 119,287,507,807 84,706,413,257 34,580,896,926 71% Vermont NA NA NA NA NA NA NA NA NA Virginia 1,235, ,008 69, % 5.6% 417,169,394, ,419,114, ,749,762,835 71% Washington 1,402, ,905 74, % 5.3% 451,089,987, ,477,095, ,612,289,578 66% Washington, DC 100,050 15,899 4, % 4.6% 48,442,762,101 28,790,943,142 19,651,778,498 59% West Virginia NA NA NA NA NA NA NA NA NA Wisconsin 568,529 80,497 29, % 5.2% 111,007,096,015 74,102,079,961 36,904,784,980 67% Wyoming NA NA NA NA NA NA NA NA NA Nation 47,354,699 10,698,024 2,301, % 4.9% 12,795,512,047,914 8,897,671,312,552 3,897,820,918,898 70% * This data only includes properties with a mortgage. Non-mortgaged properties are by definition not included. ** Defined as properties in negative equity or within 5% of being in a negative equity position.

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